Click to edit Master title style
Human Capital Reporting
Quantifying the value of Human Capital
in an organisation

Cliché – People are our greatest asset

Fact – People costs constitute up to 65% of operating costs.

Reality – Very little reporting on value and efficiencies of people
Agenda

Why report on human capital?

Barriers to human capital reporting

Reliability and measurement

Guide to human capital reporting

Case study: Kelly Group’s people value statements

International benchmarks

Questions
Why report on human capital?

Gaining a competitive advantage through traditional means such as product and
process is becoming increasingly difficult to achieve. In today’s economy, an
organisation’s success is the product of the competence of its people

Where all else is equal customers chose one company over another because of
their experience they have at the human interface

A company’s ability to support its strategies with human capital is an important
indication of the sustainability of the company’s future business performance
Why report on human capital?(cont.)

Reporting can support the four pillars of decent work i.e. fair wage, job security,
benefits, safe environment and can be used to benchmark for best practice and
regulation

Your human capital is a value producing asset

Sound HR practices account for gains of 40% or more (Jeff Pfeffer: Stanford
University)

This information should be visible and available to all stakeholders
Click to edit Master title style
“Though your balance sheet’s a model of what a balance sheet should be,
Typed and ruled with great precision in a type that all can see,
Though the grouping of assets is commendable and clear,
And the details which are given more than usually appear,
Though investments have been valued at the sale price of the day,
And the auditor’s certificate shows everything’s OK,
One asset is omitted – and its worth I want to know,
The asset is the value of the men who run the show”
- Archibald Bowman, 1938
Barriers to human capital reporting

Accounting barriers:
− No requirement under Generally Accepted Accounting Practices (GAAP)
− No official standard or framework
− Human capital is not included in the valuation of a business

Other barriers:
− HR data often collected for administrative and labour compliance rather than evaluation
purposes
− Disclosure can be competitively sensitive
− Resistance to change
Reliability and measurement

Information should be neutral, free from bias, dealing with good and bad aspects

Content must be relevant, reliable consistent and complete

Use comparatives / historic data and basic accounting concepts such as matching
and the consistency concepts

Measurements disclose source, assumptions and benchmark data

Should be audited
Human capital reporting guide

Include human capital strategy and provide information on human capital
performance
A company’s ability to support its business strategy with its human capital is an indication of
its future performance
− Reporting should start with the company’s strategy statement, highlighting its approach
to the attraction, development, management and performance of human capital aligned
to the brand personality with the vision, promise, values and culture of your organisation
e.g. Kelly Group leadership blueprint
Case study: Kelly Group
Case study: Kelly Group

People Value Statements: delivering on the brand’s promise
− Included in Kelly Group’s annual report and designed to measure the effectiveness,
attitude and efficiencies of it’s people so that stakeholders can see the value of our
people as a sustainable business asset

Key performance indicators: human capital performance
− Financial: traditional accounting metrics
− Customer service: measuring the effectiveness of the people in the organisation at the
point of interaction between our people and our customers (client and candidates)
− People relationships: the attitude of our people and leadership effectiveness as
measured by independent research organisations
− Productivity: the efficiency of our people in real terms
Case study: Kelly Group

Customer service at the point of interface
− Customer Satisfaction Index (CSI)
o
o
o
o
Independently measured
Shows ability to deliver on brand promise
Shows ability to gain and maintain market share
Rational vs. emotional connection
Case study: Kelly Group

People relationships
−
−
−
−
−
Staff complement
Staff turnover
Length of service (retention of corporate memory)
Absenteeism
Demographics
o
−
−
−
−
−
age / generational aspects / gender
Employment equity
Intellectual capital data base
Skills development / leadership development initiatives
Employee assistance programs / wellness initiatives
Employee relationship index
o
critical improvement issues, loyalty analysis and commitment index
− Management review
Case study: Kelly Group

Employee Relationship Index – critical improvement issues
 Independently measured
 Shows employee satisfaction over a number of areas
Source: Kelly Group Annual Report 2008
Case study: Kelly Group

Employee Relationship Index - loyalty analysis
− “Employee commitment” accounted for 12% of the variation between companies in
their profitability and 17% in their productivity and a HR ethos showed consistently
better results.” *
•Source:
•Sheffield Business School 2001/R. Kasselman 2006
Attitude to Co.
+
Intervene & Re-Direct
–
Action: Likely to stay
Positive
impressions,
may not
stay
13%
Accessible
High Risk
–
25%
If Profitable, Save
Don’t
want to
stay, probably
won’t
49%
+
Maintain &
Grow Relationship
Want to
stay,
will continue
to stay
Truly Loyal
Accessible
High Risk
Loyal
Trapped
Trapped
14%
Will
continue
to stay, don’t
want to stay
Fix Concerns to
Retain or Enhance
P1_May07
12%
25%
52%
11%
100%
P2_Feb08 P3_Nov08
13%
13%
24%
25%
50%
49%
13%
14%
100%
100%
Case study: Kelly Group

Employee Relationship Index - commitment index
5.0
Feb 08
4.0
74.9
High
4.0
4.0
This overall mean score is created by combining
and averaging the answers to the statements:
 I really feel like part of the family in my
company
 I feel a strong personal attachment to my
company
 I am proud to be part of my company
 When there are challenges in my company,
they feel like my challenges too
 I believe my company deserves my loyalty
 I feel part of my specific department/ team
74.0
3.0
2.0
1.0
Low
Case study: Kelly Group

Productivity: measuring efficiency in real terms
Case study: Kelly Group

Calculating the value of your human capital
− The Kelly Group has devised a simple formula to value its people:
(current monthly salary / 1 000) x (average training days per year of service)
x (average cost to company per training day) x ((100 – age)/age)
− According to this formula the intellectual capital within the group is
approximately R2.08 billion (2008); R1.73 billion (2007)
International benchmarks
 Human Capital output of America’s biggest
companies was assessed
 Early days however Top Companies are taking
human capital and organisational capability
seriously
 GE, IBM, Intel, Ups, Wells Fargo reported a
strong position
 “If a company doesn’t show any evidence of
good human capital practices or outcomes then
stakeholders assume that they are not investing
in future results and begin to lose confidence”
- Dave Creelman
Source: Creelman Research, Reporting on Human Capital
What the Fortune 100 tells Wall Street about Human
Captial Management Reporting: Best Practice
Communication
 How management is using communication to drive the business forward, specific
details of programs, metrics showing outcomes, verification of effectiveness and
showing how the organisation keeps its promise.
Diversity
 Survey findings, Data on gender, retention, listing of goals and performance scores
according to gender and other innovative or unique practices.
Employee surveys
 Industry and national benchmarks, include questions, explanations, actions and
engagement scores.
Source: Creelman Research, Reporting on Human Capital
What the Fortune 100 tells Wall Street about Human
Captial Management Reporting: Best Practice
Health and safety
 Metrics on injury, fatalities and illnesses, benchmarks, rationale for importance of
safety
Industrial relations
 Number of unionized employees, unions they belong to, evidence on practices to
ensure good industrial relations, costs which can be tied to industrial relations
issues i.e. strikes, measures of satisfaction/engagement of unionized employees,
explanation of past difficulties and how they were resolved and a description of
relationship-building programs
Reward
 Hourly workforce costs, policy, details of incentive pay at all levels and how the
compensation policy supports the strategy
Source: Creelman Research, Reporting on Human Capital
What the Fortune 100 tells Wall Street about Human
Captial Management Reporting: Best Practice
Recruiting
 Quality-of-hire metrics, number of applicants per opening, data on the percentage
acceptance of offers, an audit of recruiting practices showing if best practices are
being followed, “cost of hire” and “time to fill”
Training and development
 Historical trends, training by strategic intent, industry or national benchmarks,
detailed information on the most strategic training programs, impact of training on
future earnings
Work-life
 Satisfaction metrics, comprehensive program information and rationale behind the
work-life program
Leadership
 Development and succession planning practices, processes or structures that
ensure the leadership team is effective and depth of the talent pool
Source: Creelman Research, Reporting on Human Capital
“The most valuable asset of a 21st century institution…….will be its knowledge workers
and their productivity”
- Peter Drucker
Questions